BRUSSELS (AFP) — The European Commission called on state-run investment funds to sign up to a voluntary code of conduct, stopping short of proposing to regulate the emerging financial powerhouses in Europe.
EU Economic and Monetary Affairs Commissioner Joaquin Almunia stressed that a code of conduct for sovereign wealth funds represented a "win-win game" for both the funds and the recipients of their investments.
"The establishment of a code of conduct for sovereign wealth funds is a good thing to increase confidence among recipients on how sovereign wealth funds adopt decisions," Almunia told reporters in Brussels.
"This is good for both sides, it is a win-win game," Almunia added. "It's in the interest of both sides, investors and recipients."
Sovereign wealth funds, which are generally defined as state-controlled investment vehicles, have been around since the early 1950s but their ranks have swollen in recent years.
According to the commission, sovereign wealth funds now hold 1.5 to 2.5 trillion dollars in assets worldwide, with one estimate suggesting that could rise to 12 trillion dollars by 2015.
Such funds have risen in prominence as resource-rich states in the Middle East seek to reinvest their petrol earnings and China tries to shift its huge foreign reserves into assets that yield more than US government bonds.
However, their rise has been accompanied by fears in some European countries and Washington that the governments that control sovereign wealth funds could use them to advance their political and strategic aims.
EU Internal Market Commissioner Charlie McCreevy downplayed such concerns, insisting that sovereign wealth funds were better investors than most because they focused on the long-term rather than short-term profits.
"As far as I'm aware, there is no known instance of a sovereign wealth fund acting in any other than a responsible matter until now," he said.
"They've been the best type of investors ... They take a long-term view."
However, McCreevy acknowledged that "some people are afraid of what might happen in the future," adding that if regulation needed to be drafted, then it should not be only at the European level.
"There is always the reserve of action but it would have to be action that is effective, action that is taken at the global stage rather than say by us in the European Union," he said.
In particular, the commission called on EU nations to support international efforts already underway aimed at setting out a code of conduct that would ensure transparency about the investments.
Finance ministers from the Group of Seven richest countries asked the International Monetary Fund in October to draw up a code of conduct for sovereign wealth funds.
Meanwhile, the Paris-based Organisation for Economic Cooperation and Development is drafting guidelines for fair and transparent investment.
The commission said sovereign wealth funds should boost their transparency with annual disclosure of their investment positions and asset allocation, in particular for investments where there is also majority ownership.
They could also make public when they exercise ownership rights, disclose their use of debt, what currencies they use as well as the size and source of their resources and what regulator they answer to.
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